The increase in small business costs directly resulting from Government policy decisions has significantly outpaced inflation in recent years, according to the Federation of Small Businesses (FSB)’s new Impact of Government Policy Index (IGPI).
Produced by leading independent consultancy the Centre for Economics and Business Research (Cebr), the report finds that a wide range of Government taxes, reliefs and employer obligations have caused outgoings for smaller firms to rise by an average of 12.5 per cent in the five years to 2016. That compares to a cumulative Consumer Prices Index (CPI) figure of 7.7 per cent over the same period.
The UK IGPI, starting from 100 in 2011, increased to 112.5 for 2016.
Mike Cherry, FSB National Chairman, said: “Policy should always be evidence-based. This new independent research sets out just how the costs of many historic and individual policy decisions have mounted up, heaping large and sustained pressures on small firms at a rate that’s significantly outstripped CPI.
“Given that small firms employ 60 per cent of private sector workers and are the engine room of our economy, all policymakers should take heed of this cumulative burden when it comes to future policy interventions.
“As the Budget approaches, entrepreneurs will be looking to the Chancellor for measures to help bring down the spiralling costs of doing business, as well as making sure that all Ministers and Departments know the business costs of any proposed new interventions.”
Medium-sized businesses report the highest IGPI for 2016 (120.1) followed by micro (118.1) and small (111.4) firms.
The construction sector is hardest-hit by Government interventions according to the new report, with costs rising 34 per cent as a result of policy decisions. Being a labour-intensive industry, construction firms have been heavily impacted by the introduction of pension auto-enrolment, increases to minimum wage rates and rising employer National Insurance Contributions.
Corporation tax liabilities for construction businesses have also steadily risen as they have recovered from the financial crash. Meanwhile, frequent changes to the Annual Investment Allowance (AIA) have made future planning a challenge across the sector.
Mike Cherry continued: “Small construction firms are being disproportionately squeezed by Government-imposed costs. If this administration is serious about tackling the housing crisis, that has to change.
“Our members are contending with a huge number of taxes, duties and employer obligations. Then when a useful incentive like the AIA does comes along it chops and changes so much that businesses don’t know where they stand from one year to the next.
“More needs to be done to encourage small businesses to grow. That includes incentivising patient capital through reliefs for early stage investors and through effective replacement of the European Investment Fund.”
The London IGPI (113.2) for 2016 is higher than the UK average. The capital plays host to a greater number of real estate and professional services firms than the country as a whole. Both sectors report unusually high indices.
Mike Cherry concludes: “At a time when European cities are vying to tempt firms away from London, more has to be done to curb soaring costs in the capital. Raising the threshold for small business rates relief across the city, and looking again at Permitted Development Rights, would be good places to start.”